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Kinross Settling Maricunga Mine Strike

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Gold miner Kinross Gold Corporation’s (KGC - Analyst Report) two unions have signed a memorandum of understanding to end the strike which started at the Maricunga mine in Chile's Region III on Mar 5. The unionized employees and the company have reached an agreement to settle the issues which are fair and reasonable to both parties. The agreement has been made considering all aspects including cost challenges at Maricunga and the current gold price environment.

The outage due the undergoing strike will, however, have no impact on Kinross’ 2014 regional guidance for the Americas. Management has plans to resume to its normal operations immediately. Shares of Kinross gained as much as around 5.7% during the trading session following the news.

The unionized employees of the Maricunga mine had initiated the strike to protest against the failure to reach a new collective agreement at the mine. The mining operations were suspended at the mine for the time being. However, the heap leach facility and processing plant continued to be in operation to meet environmental compliance obligations.

Kinross originally acquired 50% interest at the Maricunga open pit mine through the Kinam merger and began operations at the mine in Jun 1998. Later in Feb 2007, Kinross acquired the remaining 50% stake through the acquisition of Bema Gold Corporation.

The Maricunga mine is a three-stage crushing and heap leach operation mine with a capacity to produce 40,000 tons of ore per day, or 11 million tons per year. The mine had produced roughly 188,000 gold equivalent ounces last year.

Kinross posted its fourth-quarter 2013 results last month. The company logged net loss of $740 million (or 65 cents per share) on a reported basis in the quarter, lower than net loss of $2,984.9 million (or $2.62 a share) recorded in the year-ago quarter. Losses narrowed in the reported quarter on lower impairment charges.

Adjusted (excluding one-time items) loss was 2 cents per share in the fourth quarter as against adjusted earnings of 25 cents earned in the year-ago quarter. The results missed the Zacks Consensus Estimate of earnings of 3 cents per share. The bottom line was hit by lower gold prices, higher production cost of sales and depreciation.

Revenues decreased roughly 26% year over year to $877.1 million in the quarter due to the lower average realized gold price. However, it came ahead of the Zacks Consensus Estimate of $859 million.

For 2014, Kinross expects to produce roughly 2.5–2.7 million gold equivalent ounces. The company expects production cost of sales of $730–$780 per gold equivalent ounce and also anticipates its all-in sustaining cost to be $950–$1,050 per gold equivalent ounce. Total capital expenditure is expected to be around $675 million, down roughly $585 million from 2013.

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